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September 28, 2023

Synergies in Accounting and Valuation

New article by Christof Binder on “Synergies in Accounting and Valuation” released on EBVM European Business Valuation Magazine 03/2023.

Businesses can create value through organic profitable growth, or through acquisitions. When it comes to M&A, the secret to success is synergies. A successful deal has high synergistic gains and pays little for them. All communications and disclosures about synergies are unregulated, voluntary, and unstructured. Post-deal, synergies are used to qualitatively justify the recognition of goodwill. To improve the understanding of goodwill, the IASB started an initiative to make synergy disclosures in business combinations mandatory. This article analyzes when synergy disclosures are made today, what they contain, their value relevance, and what needs to be done so that they can be integrated into purchase accounting and subsequent amortization and impairment.

Some empirical findings from our synergy value study:

  • On average, buyers get between 56% and 58% of expected synergies, the remainder goes to sellers.
  • Average run-rate cost synergies account for 6.7% of target’s revenues, and for 38% of target’s EBITDA
  • Present value of expected synergies accounts for 31.4% of target’s enterprise value
  • Sectors with highest relative synergy value are transportation and internet/online.
  • Distribution of disclosed synergy values is wide.

The full article can be downloaded for free from EAVCA’s website here.

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